Italy changes tax residency rules

07.11.2023 The Council of Ministers of Italy has given preliminary consent to make significant changes to the definition of "tax residence" for both individuals and legal entities.
Article 1 of the draft law replaces the civil law criterion of domicile for individuals: now it is defined as a place where "personal and family relations" of an individual "mainly develop."
At the same time, an individual will be considered a tax resident if he is in Italy for most of the tax period, or if Italy is his usual place of residence or the place of his main personal and family relations.
The amendments are intended to bring the legislation into line with international practice and conventions on the avoidance of double taxation. However, according to lawyers, the factor of mere physical presence in Italy does not comply with the principles adopted in the OECD and in international practice.
In many cases, the application of the criterion of physical presence can lead to a conflict over the place of residence when a person stays in different jurisdictions for the same number of days. In most tax agreements, the criteria for separation are permanent residence, center of vital interests, usual place of residence, citizenship and mutual agreement between the States parties to the treaty. The priority of the presence rule in Italian offers does not correspond to this.
With regard to corporate tax residency, the new bill cancels two existing criteria, namely, "location of the governing body" and "main purpose of activity". They are replaced by "place of effective management" and "place of current management", in addition, the rule of the location of the company's legal address is applied. If, according to any of these criteria, this "place" will be Italy for most of the tax period, then the company will be considered an Italian tax resident.
The draft resolution has been submitted to Parliament and is expected to be fully approved and published by the end of 2023. The provisions will be applied as early as January 1, 2024.
Link to source: https://www.mwe.com/insights/italian-tax-reform-new-residence-definitions-for-individuals-and-corpor...